Good day, and welcome, everyone, to the Lockheed Martin Corporation First Quarter 2008 Earnings Conference Call. Today's call is being recorded. At this time, for opening remarks and introductions, I would like to turn the call over to Mr. Jerry Kircher, Vice President of Investor Relations. Please go ahead, sir.

Thank you, Stacy, and good morning, everyone, I would like to welcome you to our first quarter 2008 earnings conference call. Joining me today on the call is Bruce Tanner, our Executive Vice President and Chief Financial Officer. Statements made in today's call that are not historical facts are considered forward-looking statements and are made pursuant to the safe harbor provisions of federal securities law. Actual results may differ. Please see today's press release and our SEC filings for a description of some of the factors that may cause actual results to vary materially from anticipated results. We have posted charts on our website today which is a supplement to our comments. And with that, I'd like to turn the call over to Bruce.

Thanks, Jerry. Good morning, everyone, and welcome to the call. Consistent with our expectations, we had an excellent first quarter and are off to a strong start for the year. Our results reflect solid operating performance across the corporation, driven by our focus on program execution as we deliver value to our customers. Our world-class employees and leadership team continued our momentum by delivering critical services and products to our customers. During the first quarter, we achieved progress in providing value to shareholders, winning new business and executing on programs for our customers. As our press release outlined, first quarter results across the corporation were strong. Our earnings per share grew by 9% on a reported basis and 24% on a recurring basis. We had solid margin expansion with a 70 basis point increase in segment operating margins helping drive our earnings growth. This margin expansion is the result of successful risk reduction activities and strong performance on key programs. These same factors enabled us to generate almost $900 million in cash from operations in the quarter. One key component of our cash deployment strategy is share repurchases. We are continuing to execute our stated practice of making opportunistic share purchases. During the first quarter, we repurchased 11.3 million shares for $1.2 billion. This represents the highest quarterly purchase level in terms of dollars in corporate history, and reduced our weighted average diluted share count for the quarter to just under 417 million shares, achieving a reduction of over 15 million shares since the first quarter of 2007. Our remaining repurchase authorization at the end of the quarter was over 21 million shares or approximately $2.2 billion at current market values. During the first quarter, we also paid a dividend to shareholders of $172 million. As a result of the…

Thank you. [Operator Instructions]. We'll go first to Robert Spingarn with Credit Suisse.

Good morning, guys.

Good morning, Robert. How are you?

Good, thanks. Wanted to ask you, Bruce, you talked about the 50% return of cash generated, free cash generated, you've done really almost half of that here in the first quarter, you talked about that. So how should we think about that number going forward, especially since here in the second quarter, your average share price is below what you paid in the first quarter?

Well, I think we've got a fairly long standing policy that says we are going to return 50% of our free cash flow to shareholders in the form of share repurchases or dividends. And I think we're... as you pointed out, we are well on that track as we look at where we are today. We'll take a look at all options coming up, we'll take a look at dividends probably in the fourth quarter as we typically do. I like having the flexibility where we sit right now and it just depends from an opportunistic perspective, Robert, what lays out in front of us. If we see some acquisition opportunities we like, we may take a different path. If we don't, we may continue with the share repurchase program. So, it's much more opportunistic than I can kind of predict at this point in time.

Yes, because you’ve down almost 1.4 in the first quarter with the share repurchases and the dividend and half the free cash for the year would be 1.6, 1.7.

Right.

Not far at all.

Right.

The other question I had for you is on your sales guidance relative to last year. It's fairly modest, you grew around 70% in the first quarter. Clearly F-16, you've talked about that's coming down. I think you said last call you do about 20 to 28 of those, this year you did nine in Q1. Can you talk a little bit about the sales trend as we go through the rest of the year?

We talk about for aeronautics or for the total whole business areas?

Entire business, but certainly we do understand that aeronautics plays a big role here?

Yes. We did here… you're actually, right. I think I mentioned 28 aircrafts on the call last time. First quarter is probably the highest quantity of aircraft we're going to see. It drops consecutively from that point down. Fourth quarter will be the lowest quarter in the year for us, 16 deliveries. As I look at Aero going forward, I expect a little bit flat probably for the next couple of quarters and I do expect still the fourth quarter to be probably the lowest quarter in the year, consistent with the expectations that we provided on previous calls. Again, I think we are talking that being down about sort of around the $850 million range from last year. That's still what we see as we look going forward. Space, they've got a couple of POT and in fact that already happened. We had a launching of satellite, both of that in the second quarter. Those are the last two POT items for us, our passage of title items, units of delivery, methodology, sales event. So, we'll probably see a little bit of a spike in space in the second quarter, then a flattening out going forward. [inaudible] slight growth quarter-over-quarter to the, I think, the guidance midpoint within the 3% to 5% range. I think we're on track for that. And IS&GS obviously very, very strong in the first quarter at 17%. I suspect they'll have sequential growth through the next three quarters, and still within line with what we talked about in the past, like the range we’ve given you at the mid-point to date of 11, we still we are on the track there as well.

Bruce, thank you for the color. Very helpful.

You bet. Thanks, Robert.

Thank you. We will move next to Douglas Harned with Sanford Bernstein.

Good morning.

Hi, Doug.

On IS&GS, because you... you talked about the margins there. I mean the margins are a little lower than you would expect for… given your guidance for the year. And I know you mentioned in your release the benefit of a contract restructuring. Could you talk about how that looks for the year margin wise?

Yes. Well, let me talk about the contract restructuring, first. We did have a contract restructuring in the first quarter and as I kind of look at that and the effects of that on the first quarter compared to say the first quarter last year, it's probably somewhere about a $10 million benefit we're seeing net-net in the quarter. The important thing I would like to lead you on, relative to contract restructuring is, this is not a one-time event. This is a contract restructuring over the life of this contract. And we kind of had good indications as we started giving the guidance in the prior-year that this event was going to happen. So really our guidance considers the effect of this when we talked about the margin improvement year-over-year. I still expect to see IS&GS have sequential improvement in its margins quarter-over-quarter. And I still expect consistent with what happened in the fourth quarter of last quarter, the fourth quarter of this year will be our highest margin year. So I am optimistic about our results going forward on IS&GS on a margin basis.

Okay, and then on space, you had particularly good margins there.

Right.

Could you talk about what led to that, is this... are there some one-time items in there?

Yes. We had… we had a one little blue bird that came in, we had a termination of settlement. But we had some folks to make some things happen from a negotiating perspective to make that happen sooner than we expected. So there was a bit of a blue bird opportunity. Most of the benefit we're seeing in space is because of improved performance with the United Launch Alliance, the equity earnings associated with that. We're really seeing quarter-over-quarter significant improvement there, and I think that's just reflective of the fact that we are in fact hitting stride with that organization. It's only worth a little bit over a year-old and we're starting to see good performance coming out it, and this quarter reflected that.

And so that benefit should be sustainable?

That benefit should be sustainable. That's right.

Okay, great. Thank you.

You bet.

And we will go next to George Shapiro with Citi.

Yes, good morning.

Good morning, George.

Bruce, you had $500 million increase in receivables. I mean, the cash flow was still pretty good, but less than what we had last year. Can you tell us what happened with the receivables and does that go down the rest of the year?

Yes, good look at it, George. I took a look at receivables myself, I really think this is more a reflection of when the snapshot was taken for measuring receivables. I went back and took a look -- and this is all about -- if I look back to the last five years, I think accounts receivable grew four of those five years in the first quarter. In fact, if I look back at 2007 between first quarter and second quarter of 2007, AR grew by $600 million combined on those two quarters and yet we still had a reduction at the end of the year. So my expectation is that this value will come back down in second quarter, and I actually expect that by the end of the year, we moved close to the 2007 end of year levels than we're right now. I think it's just a pure timing issue.

I think you just discussed it, it’s another little thing. You've mentioned you had a loss on marking-to-market some securities. Could you just discuss what that was?

Yes. I think -- there's a couple of things going on here. We have some deferred compensation items that are in investments and there was some loss to mark-to-market in that. That's reflected for those of you on the call. Couple of places, one we had some lower on the liability side, we had another unallocated items down about $25 million that reflects the liability side of it. We also had some loss within embedded, within $100 million reduction in non-operating income. Think of that as about 70%, 75% of that's actually reduction in our interest income in our cash balances. The reminder is the mark-to-market loss that we're talking out there. So, George, the way I kind of think about it is, the mark-to-market loss on the asset was kind of offset by the reduction in the liability, and those are about a push, and net-net it is down because of the interest income on the cash balance on the balance sheet.

Okay, thanks a lot.

Thank you, George.

We'll go next to Troy Lahr with Stifel, Nicolaus.

Thanks. Can you guys just specifically talk about electronics where you do 11% in the first quarter, but then you are calling for 3% to may be 5% growth the rest of the year, any pull forward there also in electronics?

Yes. We didn't pull forward. There was a... electronics had the benefit of a couple items, I actually mentioned I think on the program execution side. Some of those, in particular, aircraft deliveries for the US Coast Guard, the MPA aircraft and so forth. Those are reported from a sales perspective on a delivery basis or POT basis. So we had the benefit of that. We see a little bit less of those sorts of items in the second quarter, and that's the main reason for that, Troy.

Okay. And then also I think electronic system, you had two acquisitions last year, August and December. Did that help at all this quarter or were those pretty meaningless?

There was no effect in electronic systems in this quarter due to acquisitions. There is only a slight impact within IS&GS for a little smidge of what we did last year in the first quarter, but electronic systems was completely clean.

Okay. Thanks guys.

You bet.

We'll go next to Joe Nadol with JP Morgan.

Good morning.

Hi, Joe.

Hi. On the F-35 program, you've told us in the past that you've been booking around a 4% margin. I was just wondering what's in your plan for the year and what you did in the quarter, is the changing at all?

We didn't change anything in the quarter. And again, Joe, I don't see that happening the rest of the year that would say, suggest, that I'm going to make any changes in the rest of the year either.

Okay. And then secondly, just following up on the cash flow question, wondering if you could give us, maybe by segment, or the segment where you saw less cash flow because I know Q1 is usually a good quarter for you guys. I went back and looked in, I think this was your lowest cash flow... operating cash numbers into 2003, if you want. I mean, I know it's probably just timing, but with the aircraft, with the Aeronautics or where was it?

Just want to give you a couple of cases. You're right, we are down, as I looked at it, we are down by $600 million quarter-to-quarter compared to the first quarter of last year. That is mostly due to the timing of international receipts. Some of those, a lot of those have been aeronautics, but not all of them. But even with the [inaudible] cash quarter-to-quarter, free cash still exceeded that earnings. I think we had about a 1.1 ratio there. I fully expect 2008 is probably a little bit different trend in 2008 maybe than what we've experienced in past years. I expect 2008 to be a little more level loaded in terms of our cash generation. I think each of the next three quarters will probably start with a number with a billion in it. So I think it will be a little... again a little bit more level loaded. But look, at the end of the day, we've had ten consecutive years of free cash flow exceeding net earnings. I fully expect 2008 will follow suit.

Okay, thanks. That's helpful.

Thank you, Joe.

We'll move next to Cai von Rumohr with Cowen and Company. Cai von Rumohr - Cowen & Company: Yes. Thanks so much. You had an extra week, 14 weeks in the first quarter. But you talked on forward about the impact of kind of, A, what impact did that have on this quarter, and what impact will dropping out of the rate have on the third quarter?

Yes, Cai. Just to be clear, we have 13 weeks versus 12 last year. I’ve looked at that and I’ve scratched my head a lot to be honest with you as far as what impact that has. I think it has probably the biggest impacting two of our business areas and that's IS&GS and space. But to say, its the full impact is probably overstating it because of the timing of when some of our subcontractors give us fillings in the invoice in the month in particular versus when we bill. So, I don’t feel that we fully lose the full one-week impact there. I think we have had some benefit while we got the 8% in the quarter but to assign a number to that is just difficult to do. Cai von Rumohr - Cowen & Company: Okay. Terrific. And then two issues in space, first your $57 million in deferred gains in ILS still to go, would you comment kind of when that's going to run-out, how many lunches when we might see it? And secondly, the backlog in space was up substantially more than one would expect from the amount of bookings, maybe give us some color on that front?

Let me start with the $57 million. That's dependent upon the itineraries, either tied with the old Proton launches. So, it depends upon when the itineraries for those launches are scheduled to go. There is two launches left, that I can be very specific on. And right now I think the -- I think the Proton is under investigation because of the misalignment in the orbit of the last launch there. So, its -- my guess would be, Cai, it’s probably in the latter half of the year. So, I don't... not that I want to give any more specifics on that, because I don't have insight at this point in time to specific itinerary when those launches are going to go up. But I would guess both of them are going to be this year and later in the year. Jumping to your second question, I think backlog was down. So, I am a little confused by your question on space. I think the only business that went up was IS&GS for the year-to-date. So, I must – you must be reading it wrong there. I think we had like $1.9 billion in sale and $1.04 billion in orders. So, I think backlog actually dropped. Cai von Rumohr - Cowen & Company: It did, but it was up from the fourth quarter. It was up from the fourth quarter, not year-over-year.

I am doing it for fourth quarter. Cai von Rumohr - Cowen & Company: I will double check it.

Okay, thanks Cai.

We'll move next to David Strauss with UBS.

Good morning, thank you.

Hi, David.

Hi, Bruce. Can you quantify what exactly, how much the gain was in space in the quarter. And then just talk about space margins looking, you kind of touched this before, but tell me, look at space margins on a longer-term basis? I mean this is for the most part a cost reimbursable business where you are now making relatively high margins.

Yes. Okay. So, start with the space gain, I think you are talking about the blue bird I talked about earlier.

Right.

Yes, that’s… think of that in… the overall improvement we saw at the end of the year that I committed to in the new guidance, think of that as probably at or about a third or so of that number and the rest of it’s really due to ULA. And again, the ULA I will expect to continue throughout the rest of the year. Your second question was about performance there relative to the cost-plus business, we've get some good sized margins there. Yes, we're getting the benefits. Obviously, I think our cost-plus business in that arena is performing well as you would expect a typical cost-plus environment to perform. We are getting the benefit of the equity earnings, so we've get the income coming from ULA without the sales and that's the appropriate accounting for that, and that's helping boost those margins somewhat.

Okay. And as a follow-up, can you just run through the timing on the big competition losses like competitions and the JLTV, what you're expecting there?

Yes, let's talk about a couple of those. GPS 3 has been moving around a little bit here in the last few weeks, but I think the latest I have heard on that is that should happen probably sometime in the first early part of May and we are feeling good about that. And I think again the success we’ve had on the GPS 2R I think bodes well for that and I am optimistic there. JLTV is going to be a set demo probably the third quarter of this year, this is going to be the... I believe there are six teams competing this, it is going to go from six to three. I think there will be three individual awards, not overly large from a dollar perspective, but obviously strategically important to be in that [inaudible] to three. Later on in the fourth quarter, satellite wise, we have the GOES-R satellite, which is the weather satellite [inaudible] and that's probably just from the larger ones from a satellite perspective coming up.

And TSAT, any update there?

TSAT is still moving is the short answer there, and I'm not sure if that honestly stays in this year or not, I think that's to be determined yet still.

Thanks a lot.

You bet.

We’ll go next to Myles Walton with Oppenheimer. Myles Walton - Oppenheimer & Co.: Thanks, good morning. Question on the C-130. At what point do you consider increasing the production rate there as opposed to stretching out the delivery horizon with the closure of the pending supplemental, I think you remind us how many are in there. Would the closure of that put up a pressure on the production rates as early as '09 or would that be a little further out? And just kind of if can you give some perspective on where you think those rates could go over the next couple of the years?

Yes, well let's just say, we're not worried about having to stretch out the C-130 line, because we think there is a pretty hard market for C-130 aircraft. To your other point, I think there is a possibility we are going to see increasing production rates on the C-130 lines in Georgia in the not too distant future. I think obviously that's dependent upon a number of orders happening here in the near term that we are hopeful for, but I would not be surprised to see production rates of the C-130 production line increase in the 2010 time frame to some level higher than where we are today and we will probably have to gradually build to that over time, but it wouldn't surprised me at some point 2010, 2011 we are going to double the rate that we're today. Myles Walton - Oppenheimer & Co.: Okay. That's really helpful. And maybe on the pull down of debt in the quarter, I think this was the first time you’ve done a net pull down of debt sort of for quite some time. Obviously, you’ve got a good rate on it, but the cash interest rate is obviously not a great trade at the moment. So, I guess can you give us a little bit of rationale there as to why pull it down now? And also I guess is the deployment of capital, given the cash and the balance sheet returns, now significantly lower than it was? Are you getting more attuned to M&A at all or should we just expect it to be more share repurchase?

Good questions, Myles. Let's talk about the debt first. We did do the $1.5 billion in the first quarter. You kind of put yourself in the frame of mind of what we're looking at that time. It was a very opportunistic play, I think, on our part. We have... I think we have $100 million of debt coming up this quarter and we have about $1 billion convertible obviously in the August time frame. So, this was really a matter of maintaining our flexibility going forward. It was not any kind of things for any particular reason, it’s surely not any large acquisitions or the like. So, I don't… I wouldn’t read more into that and otherwise that we intended there. On the M&A front, I do believe we're seeing better prospects than we have in the recent past. I am hopeful we’ll see some of those close in. And I think looking forward back to the question that Rob asked early on about share repurchases versus M&A, I'm optimistic we can have some M&A activity come to fruition in the not too distant future. And I would do… let’s talk a little bit about the acquisition candidates there. I think several ones described their acquisition practices, building on a string of pearls and the like. I think that’s a pretty good analogy and I still see us as we go up forward, the ones we are looking at are probably $0.5 billion less kind of bolt-on niche acquisitions that give us some access to either some technology we didn't previously have, customer intimacy, customer access, those sorts of things. So, what we're planning to doing is probably no different than we’ve done in the past, but there could be a greater volume of those coming up in the not too distant future. Myles Walton - Oppenheimer & Co.: All right. That's really helpful. Thanks, Bruce.

You bet.

We’ll go next to Ron Epstein with Merrill Lynch.

Hi, good morning guys.

Hi, Ron. How are you?

Good. Secretary Young was out saying, I guess earlier maybe last week about the F-22 that he thought maybe upgrading the existing airplanes and that was just planned to be built is a better idea than extending the production. Do you guys have any thought on where the F-22 program is going to beyond 183?

Well, the first thoughts, we've got a… we are currently on a contract for a multi-year contract and that builds up to the 2011 time frame. I believe the supplemental budget leasing talked about right now adds four aircraft to the mix. So, that pushes us out, I think, about some time in the early 2012 time frame. That's a decision that needs to be made… as supplemental budget decision needs to be made in the latter part of this year. My view is, I mean you are not going to get a cheaper aircraft. I think Bob spoke [inaudible] last time we talked about the merits of the F-22 program, which are never going to hit as a program as the production curve cycle that is right now in terms of hitting on all cylinders from a volume perspective, from a low-cost perspective. Then you are right today. So, I think the actions that we are seeing right now is a little of bit of pushing that decision off next year and likely pushing it off to the next administration. So, I think we are doing everything we can do on our part to control that outcome and we’ll wait and see what happens.

Great. And then I guess as a follow-on to that. Can you give us an update on the international sales campaigns for F-35 and potentially the C-130 and any other aircraft program?

Yes, sure. I'll start first with F-35. I think we are seeing some progress there in fact, but couple of the countries have at least informally, if not, formally notified their various parliaments’ legislations and so forth about the need to buy some accelerated flight test aircraft, in particular I think we are talking Netherlands and UK there. So, I think the prospects are at least as strong as they were previously, if not stronger to have some pull to the left from our international community. It helps, I believe, quite significantly with the dollar in the situation it is right now, to have the benefits from selling in US dollars. We've also got renewed interest. I think you've seen probably on the F-35 from both Israel and Japan, we've had some fairly recent meetings with both parties there that I think expressed some interest that we are hopeful consummates into a deal, that maybe as quickly as anybody that’s going to buy the aircraft from an international perspective in the marketplace. So, I think those are all on the other side of news. On the C-130Js, we still see or we just closed on the Indian deal here recently. I think there is a potential international order that we're going to get in the second quarter that maybe better the Blue Bird for us that I… I will talk about the names that we get there. But I'm optimistic we can sell four or so in a quarter that maybe a little quicker than we've previously expected there. I won’t limit it to just the C-130J, you didn't ask about F-16s. So, I think we're going to sign the Moroccan F-16 deal in the second quarter, probably as well for 24 aircraft. So, I think the international marketplace is looking very good for us right now across all the products there.

Great. Thank you.

You bet.

And we'll go next to Steve Binder with Bear Stearns.

Yes, Bruce. Just a follow-on on F-16. Is Taiwan looking unlikely this year, do you think before the change in administration?

Again, Steve, that's about England’s call right now. I think the Taiwanese... I think with the recent change in administration, I think that's a favorable position compared to the old administration in Taiwan, I'm talking that in the US. So, I mean the platform that that particular party read on include the additional need for additional F-16s. I think there is a more positive outlook with that administration than what we had with the previous Taiwanese administration. So, I think those signals are both positive, whether gets done or not is a bit of a call. I think... I think the actions were in place to align for that to happen. Whether they happen or not is again kind of tough to call at this point.

And as far as the language, did you say in your opening remarks first flight of the carrier variant being late ’08 or early ’09, is that correct?

I said we're going to roll out the first carrier variant aircraft in 2009.

Because it's consistent with your language in the case still, which is some time in '09 first flight?

That's correct.

All right. And then also on cash flow, I know you touched a little bit on the receivables this year and international receipts. I'm just wondering, were there any collection issues domestically with any of your customers in the quarter?

No, I mean I’ve looked at that, Steve. I mean we had just... I can tell you a story about this. We had a large payment that literally paid the Monday after accounting closed. I mean those are the type of things that just try to encourage when your poor results and you saw increases like that. I don't think there is anything to it that's systematic or systemic. It was just a timing issue.

And one other thing on acquisitions. Are you kind of communicating kind of the level of activity greater than we achieved in '06, which is a little over $1 billion in cash out the door?

I don't see it quite at that level now.

Okay. Thanks very much.

Thank you, Steve.

And we'll go next to Carta Copeland [ph] with Lehman Brothers.

Yes, hi guys.

Hi, how are you?

Good. Just real quick on IS&GS and the revenue growth. I wondered if you might provide a little color on the moving pieces there and just characterize the three sub-segments relative to the 17% for the group as a whole?

Yes. Happy to do that. First off, I think all three LOBs within IS&GS and they were talking Information Systems, Global Services, and Mission Solutions, all three of them grew fairly significantly. It was not a slack or amongst the bunch there. So, good strong growth across all of them, probably led by the Mission Solutions and Global Services more so than the Information Systems piece as I looked at it. And the margin improvement that we saw, the operating EBIT we saw from that LOB was pretty much widespread there as well. So, good strong performance across all three LOBs within IS&GS.

But who would have... which piece would have been above and below the average in terms of... so it sounds like Mission Solutions and IS was ahead and Global was behind?

From an absolute growth perspective, the largest growing LOB was actually the Global Services, I was looking more at the dollars there. But the actual growth rates for the highest in Global Services, and I'll say Mission System... Mission Solutions and Information Systems were about on par with the growth or slightly less than the overall 17% growth rate, which is still very healthy. All of them... every single one of them was the double-digit growth.

Great. Thanks for the color. And just a follow-on, you hit on this briefly with Myles, but with respect to the changes you made in the cash interest assumption that are sort of buried in the non-operating income guidance. I mean that looked pretty substantial and offset a good busy upside you had elsewhere.

Right.

But when you think about how this may continue to apply for the full year and how that could still change below the line. With respect to the convert, you mentioned that’s callable in Q3, am I correct in assuming that the interest impact is negligible should you choose to call those bonds, meaning since the assumed cash interest rate is now roughly equal to convert rate?

[inaudible]. We do have the convertible is due in August, it's about... it’s a $1 billion fixed amount.

But should you choose to call it, there is no... that's encompassed in the guidance now.

There is no impact, those are the convertibles, the share impact there is already in our diluted shares. I mean I didn’t understand your question in the first place. But that's already reflected in our share count, so there will be no impact of that whatsoever on the overall diluted share count.

Okay, great.

Thank you.

Thanks Bruce.

We'll go next to Howard Rubel with Jefferies. Howard A. Rubel - Jefferies & Company: Thank you very much. I just want to go back to Aeronautics for a moment. Bruce, you talked about the F-22 making good progress and impact, I guess it's a little ahead of schedule. Yet when we look at the commentary, there doesn’t seem to be any discussed about improved profitability, you’re just being a little conservative or am I missing something?

No, look I think we are in the seventh year of a 12-year program, Howard, and I think we are making great progress. But as I look at the milestones that we see on the F-35 program and what could kind of trigger an unexpected profit improvement. I don't see a lot of those happening in 2008 to be honest with you. I think we need to get some more of those behind us before I really... I’m comfortable with increasing that outlook there. I don't know if that's been conservative or not, Howard, but that's what we are. Howard A. Rubel - Jefferies & Company: You may have misheard me, I said the F-22 and then you made the F-35 comment.

You said F-22, but maybe I'm confused. I thought you were talking F-35. I read that into your line. You are talking F-22? Howard A. Rubel - Jefferies & Company: Yes.

Okay. Let me view back on F-22. F-22, I'm sorry. F-22 had an outstanding quarter for the year. If you recall we had a number of adjustments at the end of the last year all throughout the year into 2007 as we retired a number of risk elements there. Last year we had the benefits of inception today, pick ups associated with those adjustments that absolute profit level is continuing into 2008 and as we go forward into 2008. If we continue on the trend we are now with continued success with zero defect aircraft and kind of manufacturing improvements that we are seeing, the levels of efficiencies. We may see something there, but I am not ready to comment to it at this point. Howard A. Rubel - Jefferies & Company: That's fair. Just sort of two things related to cash, one is it's pretty clear that it makes sense the force conversion of the... that $1 billion some. Is that sort of... are you sort of thinking about going forward to lower just absolute level of debt than you had in the past to just allow you to buy back more stock when you think about capital structure?

A lower level of debt, I think… I mean that's a capital structure decision that we are going to make at that time, but we're comfortable with our capital structure as we speak. We'll make the decision on the convertible as the time approaches. Again, I made the comment earlier of talking about the debt. I like the flexibility we have right now. That’s a decision we'll make down the road, and we'll do that when it's appropriate. Howard A. Rubel - Jefferies & Company: And then you started the year with only $100 million in CapEx and I think you are targeting closer to $900 million or so, and I know the first quarter is always slow.

Right. Howard A. Rubel - Jefferies & Company: Is there anything there that's…

No, in fact first quarter was actually higher than the previous year's quarter. We are actually looking about $1 billion of CapEx and it doesn't surprise me whatsoever that we only spend $100 million in the first quarter. Howard A. Rubel - Jefferies & Company: Thank you very much.

You bet. Thanks, Howard.

[Operator Instructions]. We'll go next to Heidi Wood with Morgan Stanley.

Yes, thanks a lot. Bruce, I have to go back to space just to kind of dot the eyes a little bit and make sure I understood it. If I assume that $15 million process on ULA and normalize to that commercial satellite launch, the commercial satellite is about $125 million. It looks like structurally, if you do about the 12.3% margins that you reported on an ongoing basis, the question I don't think understand yet is how much was that terminated commercial launch contract and is the Orion ramp up diluted? Is that part of the reason why it seems like you're arguing that 1Q margins aren't sustainable going forward?

I apologize if I was arguing, Heidi. I was not intending to, but…

No, no. I just made...

As I look at space, again I think what I am trying to tee up was that of the guidance increase we had at the end of the year, probably a third of that comes from that satellite adjustment and we talked about the termination, it's two-thirds as you relate, that will continue going forward. We are seeing growth in the CEV Orion program that is helping to minimize the increases going forward, and we won’t have that one-time Blue Bird in the first quarter. There is... I think actually you've got it pretty accurate.

And then you've only got one commercial satellite left. So, in terms of zero margin, there is only another $125 million of headwinds. So if you can get performance, then arguably you could do better than where you are presently guiding for the rest regarding space. Is that fair?

I think that that's probably fair.

All right. Another question, can you give us some sense of what employee productivity measures that you monitor and what matters? When I look at the sales per employee trend, it's obviously been on the rise the last several years, from '01 to '07. But in 1Q ‘08, sales per employee turned down. Does that matter? Is that something we all in the outside should be watching?

Yes. I got to be honest with you, Heidi. When I think to look at employee productivity, most of my metrics are in terms of the company, because I think the sales are going to take care of themselves, get out of the dip in Aeronautics. Internal measures, I look at... when we take a look at all these, they are different from kind of the manufacturing part of the business versus the technology side of the business, but we look at things like productivity measures in terms of well level of lines of code, are we programming in for a software, what levels of defects are we seeing in our software per expanded lines of code from a manufacturing side in the aircraft businesses. How many hours per unit, what sorts of efficiency levels, what sorts of realization rates are we experiencing there. So, there is nothing that I see in many of those metrics that gives any kind of cause for concern.

All right. Great. And one last question, can you... you've obviously been a news quite a bit on some of the problem programs. Can you give us an update on some of the programs that are sort of broaching or currently in non-Mercury, you touched on VH-71 JASM, CIBERs [ph], any progress updates on those?

Yes, let me see here. VH-71 JASM, what was the other one?

CIBERs [ph].

CIBERs [ph]. Let me start… let me start with JASM, I guess that's an interesting... an interesting program to begin with because all non-Mercurys are not created equal in the first place. I kind of like to characterize non-Mercurys between performance, non-Mercurys and administrative non-Mercurys and I would characterize the JASM non-Mercurys as administrative non-Mercurys. There is a more of technicality than anything else, but surely not performance on our part. So, I think that program is likely to get re-certified in the not too distant future and we're likely to get a new award for last seven missiles in the not too distant future. So I'm very optimistic about the outcome of JASM. The VH-71, we are currently still working the Increment I part of the solution set. There is going to be a decision, we need some funding... the FY '08 funding was a little short this year than what we would have like to have done. That caused a slip in the ILC date for those aircraft, the initial operating capability dates of those aircraft for 2010. There is a decision that’s been made as far as fully funding the Increment I solution in the latter part of this year. I'd look for that in the FY '09 budget and then there is a decision for the later on for the 23 production helicopters for VH-71 as far as how much of Increment II or I should say how large of Increment II are we going to do on those 23 aircraft. And that's a decision that's yet to be determined in my mind, it's likely to get pushed into the early next year as well. Let’s see, CIBERs [ph], I think CIBERs [ph], the last data I saw on that we're making progress on the flight service station software that was the issue that was raised there. And I think we're making good progress there to rectify that situation. I mean I look at all those programs, kind of all the high visibility programs that you talked about. I think that trend is going out for each and everyone of them. So, I am very pleased where we are headed.

Okay. Great, Bruce. Thanks very much.

Thank you.

Thank you. And we'll take a follow-up from George Shapiro with Citi.

Yes, Bruce. I was just looking at IS&GS after the 17% growth in the first quarter. If you're only going to get to the high end of your sales guidance for the year, the growth has really got to slow to around maybe 9% for the rest of the year. So, is there something that causes that to slow or it's just the first quarter was that much quicker or what happened or you just being conservative?

Well, again I think, I try to tee up 17% in the first quarter. I assume that although it's hard to figure out how much of that impact is due to the extra week. There was the extra week of all the business areas within the corporation, IS&GS is probably the one that’s affected by that. So, that had some impact there. As I look forward in the next three quarters, I think we're going to see fairly consistent growth and still getting to about the double-digit levels we talked about in the guidance. So, I don't think there is a cause for concern there.

Okay. Thanks.

Thank you, George.

And we will take a follow-up from Joe Nadol with JP Morgan. Joseph Nadol – JP Morgan: Yes, Bruce. Just back to Global Services. It sounds like the margins might have been down a couple of 100 basis points there. And I am wondering, was that PAE, was it somewhere out in... what was going on there?

Yes, I don't see the margins going down that dramatically in Global Services, we did have some high growth there. It wasn't as high as from a margin perspective as Information Systems or Mission Solutions. But I don't think there is a PAE issue there at all. Joseph Nadol – JP Morgan: What was the driver, because you said that sales growth was better than 17% but operating profits remain unchanged. So what drove that?

Again a lot of these contracts are, not to get into the accounting specifics. But this is service contract accounting and depending on the hiring of when those receipts come in quarterly numbers tends to balance around. But overall I don't see a change thus far we are discussing. Joseph Nadol – JP Morgan: Okay. Thanks.

Thank you.

And with no further questions at this time, I would like to turn the conference back over for any additional or closing remarks.

Okay. Thank you, Stacey. As we conclude, I would like to thank all of you for your continued interest in Lockheed Martin and for joining the call today. Our results demonstrate the progress we are achieving across the corporation and our portfolio of programs. Our production activities and quality processes are world-class and our development activities continue to provide innovative solutions as we strive for flawless execution on customer requirements. We remain focused on our strategy to create a balanced portfolio that will enable us to continue to grow revenues, earnings, and margins while providing strong cash generation. We believe achievement of this strategy will continue to deliver superior results and value to our customers and shareholders. Thank you again for your support, and we look forward to speaking with you on our next quarterly call. Stacey, that concludes this call.

Thank you. And once again ladies and gentlemen that will conclude today's conference. We do thank you for your participation and you may disconnect at this time.